Chargeback exposes IT shops as slow, expensive suppliers

In the heady days of 2008, when server virtualisation was young-ish and low hanging fruit of physical servers could be found on every rack in data centres and server rooms around the world, VMware slipped out an update to its Lifecycle Manager that included chargeback features.

Chargeback enables metering of IT resources, even making possible itemised bills of how much individual teams use virtual servers and other IT resources. With that knowledge in hand, chargeback theory suggests, IT departments can send the CFO and internal users bills that demonstrate the real cost of IT and ask for cash an internal cash transfer. At the very least, IT departments can wave the accounts around to show business units that their operations have a real cost that cannot be taken for granted.

The industry got excited about chargeback at the time, but the concept has largely fallen flat.

Steve Gross, VMware's Product Marketing Manager, APAC, now says the company was “seeding the market” with its early versions of chargeback, “to get CIOs to start thinking about more of an infrastructure as a service and a cost-based model for IT.” Seeding was necessary because, Gross says, “It [a move to IaaS] is an awkward shift given the way people think of IT as a cost centre.”

The move is sufficiently awkward that Gartner, in a 2010 CFO Advisory: IT Chargeback Overview declared chargeback “a political minefield and administrative hassle” that was “more about politics and finance than it is about information technology.”

Gartner's Andy Rowsell-Jones, a Vice-President and Research Director in the firm's CIO & Executive Leadership Research Team, says chargeback didn't catch on because the harsh reality of putting a price on IT services opened other cans of worms.

“When a business unit consumes a resource it is only right and roper that they should pay a cost,” he says. “That's the theory, but the reality is more complicated because once you charge back you expose price for the service.”

Chargeback is a “a political minefield and administrative hassle” that is “more about politics and finance than it is about information technology.”

While chargeback tools have therefore allowed organisations to create accurately-priced IT services catalogues, it also means users can now balk at a price that was once obscured from view.

“IT is a high cost operation and there will under-recoveries as business units slash consumption,” Rowsell-Jones says. “That’s a terribly interesting position to find yourself in as leader of an IT group. At that point you may wish you had never done chargeback to start with.”

The cloud is also complicating matters, as cloud providers' very public price lists for computing services can throw internal IT organisations' fees into nasty relief.

“Internal organisations cannot compete with the cloud,” Rowsell-Jones says. “When I have been asked to help with questions of why the cloud is so much cheaper than internal IT, I say the only sensible response is that unless there is a compelling security or privacy reason not to allow PaaS or SaaS, users cannot make a compelling case for dealing with IT as a slow and expensive supplier.”

That's not the quite the outcome one imagines chargeback was designed to create.

VMware has therefore updated its vision for chargeback to include operations management, performance management and capacity management, a combination Gross says includes all elements of IT service delivery, from infrastructure to the help desk. “That takes it to the next level so the CIO can have a business-level conversation and become a business broker who understands the holistic cost of service delivery.”

That approach, Gross hopes, makes chargeback less of a political risk and more likely to help organisations mature their IT operations.

Microsoft has similar plans, and has told The Register that a service pack for System Centre 2012, due in 2013, will go beyond the package’s current basic abilities of allocating certain levels of resources to pools of users. More granular resource allocation controls will be one addition, as will better chargeback and metering tools.

Cloud operators are becoming keen on more visibility of costs for users. Amazon Web Services, for one, now offers automated Billing Alerts.

And that kind of offer, says Gartner’s Rowsell-Jones, might actually help CIOs by showing that while their operations cannot compete with commodity IT services they can undertake tasks that no service provider will perform.

“Inside a big business with lots of exotic needs, the IT shop can be cheaper per transaction than outside suppliers. Rather than denying it, embrace it and use it as motivator to provide more cost effective ways of providing services.”

To do so, he says, CIOs will need to learn one more trick: marketing. “One of the things IT departments are very bad it is merchandising,” Rowsell-Jones says. “They’ll need to get better in future.” ®